Japan's savings rate turns negative

Japan's high savings rate, considered one of the drivers of its trade surplus in the past, is no more. From Bloomberg:

The savings rate in the year through March was minus 1.3 percent, the first negative reading in data back to 1955, the Cabinet Office said. Real earnings fell 4.3 percent in November from a year earlier, a 17th straight decline and the steepest tumble since December 2009, the labor ministry said today...

The savings rate, which the Cabinet Office calculates by dividing savings by the sum of disposable income and pension payments, peaked at 23.1 percent in fiscal 1975.

As Japan’s population ages, its growing ranks of elderly are tapping their savings, according to the Cabinet Office. Consumers also ran down savings to make purchases ahead of a sales tax-increase in April, the first since 1997.

Stocks rally but also face risks

Stock markets mostly rose last week.

The MSCI All-Country World Index rose 2.3 percent, led by stocks in the United States and Europe. The Standard & Poor’s 500 Index jumped 3.4 percent while the STOXX Europe 600 Index rose 3.0 percent.

Asia underperformed last week, with the MSCI All-Country Asia Pacific Index slipping 0.2 percent. However, the Shanghai Composite Index jumped 5.8 percent to close at a four-year high.

While the rally last week left the S&P 500 just 5 points below its all-time high achieved on 5 December, some investors are seeing danger in the sudden rally.

A post from the Wall Street Journal's Moneybeat blog over the weekend pointed out that the recent rally may have been the result of fund managers buying stocks to make their funds look good.

“If you are among the 85% of money managers behind the S&P 500, this is a chance to catch up,” Jack Ablin, chief investment officer at BMO Private Bank, was quoted as saying.

Stocks would then be at risk if managers shift some money elsewhere early next year.

The Wall Street Journal also quoted Kristina Hooper, US investment strategist at Allianz Global Investors, as saying that with the Federal Reserve ending its bond purchases and preparing to raise short-term interest rates, “we are likely to see more volatility going forward”.

However, the Wall Street Journal also noted that stocks normally perform well in late December and January, a period that we are now entering.

US stocks rebound as oil rallies, Chinese stocks hit 4-year high

US stocks finally saw a strong rebound on Wednesday that saw it erasing almost half of its December loss. Bloomberg reports:

The S&P 500 surged 2 percent to 2,012.89 by the 4 pm. close in New York, the biggest one-day gain since October 2013 to reduce the index’s December decline to 2.6 percent. Yields on 10-year Treasury notes climbed eight basis points to 2.14 percent and the Bloomberg Dollar Spot Index rose 0.9 percent as the yen slid. Oil rallied from five-year lows to fuel gains in energy stocks, while the ruble strengthened before Russian President Vladimir Putin holds his annual media conference.

The Fed said it will be patient on the timeline for higher rates, replacing a pledge to keep borrowing costs near zero for a “considerable time,” and raising its assessment of the labor market. It was another step in the Fed’s exit from the loosest monetary policy in its 100-year history...

Brent, the benchmark for half the world’s oil, advanced 1.9 percent from a five-year low. WTI shrugged off an increase in supplies at Cushing, the delivery point for Nymex futures. to rise 1 percent to $56.47 a barrel.

Elsewhere, most markets performed less impressively.

In Europe, the STOXX Europe 600 Index closed with a 0.1 percent gain after having lost as much as 1.1 percent at one point on Wednesday.

Earlier in Asia, stocks were mixed but China's stock market jumped 1.3 percent to a four-year high.

Markets fall as oil hits five-year low

Global markets suffered steep falls last week.

Stocks fell sharply, with the MSCI All-Country World Index falling 3.8 percent last week. The Standard & Poor’s 500 Index fell 3.5 percent. The STOXX Europe 600 Index plunged 5.8 percent, its worst week in three years. The MSCI All-Country Asia Pacific Index fell 2.0 percent.

Sentiment in stock markets were hurt by continuing declines in oil prices last week. West Texas Intermediate oil fell 12 percent, hitting its lowest level since May 2009 on Friday, while Brent fell 11 percent, hitting its lowest level since July 2009.

Oil touched its lows for the week after the International Energy Agency reduced its 2015 demand forecast by 230,000 barrels, the fourth cut in its forecast in five months.

The falls in stocks and oil hit speculative grade credit. The iShares iBoxx High Yield Corporate Bond exchange-traded fund fell 3.4 percent last week, the biggest decline since 2012.

Government bonds in financially-troubled economies also fell. Greece’s 10-year yield rose 192 basis points, the biggest weekly increase since May 2012.

Conversely, yields of government bonds considered safe havens fell. The yield on the United States 10-year Treasury note fell 23 basis points last week, the biggest decline since June 2012. The yield on German 10-year bunds fell 16 basis points.

Economic data last week showed strong growth in the US but weakness elsewhere.

In the US, retail sales rose 0.7 percent in November and the Thomson Reuters/University of Michigan's preliminary reading on the consumer sentiment index for December showed a rise to 93.8, the highest reading since January 2007, from 88.8 in November.

However, in the euro area, a report last week showed that industrial production rose just 0.1 percent in October.

In China, a report last week showed that industrial production rose 7.2 percent from a year ago in November, slowing from the 7.7 percent year-on-year increase in October. Trade shrank in November as exports rose 4.7 percent from a year earlier, down from an 11.6 percent rise in October, while imports fell 6.7 percent last month after having risen 4.6 percent the previous month.

Also last week, Japan revised down its third quarter GDP data to show a contraction of 0.5 percent, worse than the preliminary estimate of a 0.4 percent contraction. Another report showed that Japanese machinery orders fell 6.4 percent in October.

Stocks fall as oil sinks

Markets fell on Wednesday. Bloomberg reports:

U.S. stocks led global equities lower for a third day, as a rout in energy producers spread to the broader market after oil sank to a five-year low. The yen strengthened with Treasuries as investors sought haven assets.

The Standard & Poor’s 500 Index dropped 1.6 percent, extending losses in afternoon trading as all 10 main groups slid at least 1 percent. West Texas Intermediate crude plunged 4.5 percent to settle at $60.94 a barrel, while Brent fell below $65 for the first time since 2009. The yield on 10-year Treasury (USGG10YR) notes dropped five basis points to 2.17 percent. The yen had its biggest three-day gain in more than a year. New Zealand’s dollar soared 1.7 percent at 5:34 p.m. in New York as the central bank said future interest-rate increases can be expected after holding borrowing costs steady today...

The MSCI All-Country World Index dropped 1.2 percent for a third day of losses. It was the biggest retreat since Oct. 10 and the lowest level since Oct. 30.

The fall in the S&P 500 on Wednesday was the biggest since 13 October. It has now fallen for three consecutive days after hitting a record high on 5 December, losing 2.4 percent in the process.

The US stock market's rally from the October low has clearly lost momentum for now.

Emerging market stocks lag as BIS warns of market fragility

Stocks in developed markets saw another strong rally last week but stocks in emerging markets lost ground.

In the United States, the Standard & Poor’s 500 Index rose 0.4 percent last week to a record high of 2,075.37. Helping to propel US stocks up last week was the employment report on Friday showing that the economy added 321,000 jobs in November, the most since January 2012.

The STOXX Europe 600 Index rose 1.1 percent last week to its highest level in almost seven years. European stocks rose even though the European Central Bank refrained from implementing quantitative easing at its monetary policy meeting on Thursday.

In contrast to the positive performance of stocks in developed markets, stocks in emerging markets fell last week. The MSCI Emerging Markets Index declined 1.9 percent, leaving it 1.7 percent down for the year to date.

Emerging markets could face further headwinds.

In its quarterly review published on Sunday, the Bank for International Settlements noted that with the Federal Reserve ending its quantitative easing, the US dollar has appreciated against most currencies, especially against those of commodity exporters. It warned that if the appreciation of the US dollar persists, it may have a “profound impact” on the global economy, and in particular, on emerging market economies where many firms have large US dollar-denominated liabilities.

The BIS also had a warning for financial markets as a whole. In its review, it noted that while financial markets remain buoyant, the spike in volatility in mid-October “underscore how sensitive markets have become to even small surprises” and “suggests that more than a quantum of fragility underlies the current elevated mood in financial markets”.

Indeed, the lagging performance of emerging markets could be a warning sign for the more buoyant developed markets.

At market tops, weaker stocks are often the first to decline. After investors unload the lower-quality stocks, selling then moves to the higher-quality stocks.

Insofar as emerging market stocks are generally considered of lower quality than developed market stocks, it is not inconceivable that we may have been seeing a market topping action unfolding in recent weeks.

Stock market rally may turn into bubble as oil falls

Global stocks mostly continued their rally in November even as oil extended its slump.

The positive performance of stocks is reflected in the MSCI All-Country World Index, which rose 1.5 percent last month.

Driving the rise in stocks were the United States and European markets. The Standard & Poor's 500 Index rose 2.5 percent and the STOXX Europe 600 Index jumped 3.1 percent.

In contrast, Asian stocks fell. The MSCI All-Country Asia Pacific Index fell 0.8 percent in November.

Stocks were boosted by a cut in interest rates by the People's Bank of China last month as well as suggestions by European Central Bank President Mario Draghi that it may increase monetary stimulus.

In contrast to stocks, oil prices plummeted in November, declining for the fifth consecutive month.

West Texas Intermediate oil fell 18 percent last month, the largest one-month percentage decline since December 2008. It fell 10 percent on Friday to close at its lowest since September 2009 after the Organization of the Petroleum Exporting Countries announced that it was keeping its production ceiling unchanged.

Brent crude oil also finished the month down 18 percent.

John Authers at the Financial Times thinks that falling oil prices could stoke a stock market bubble.

Authers wrote that cheaper oil provides a boost to the economy while lowering inflation. The latter in turn allows central banks to keep monetary policy loose.

“So if Opec will not act to keep a floor under the oil price,” he wrote, “this certainly stokes the risk that the current rally in the US stock markets carries on until it boils over into a bubble.”

US stocks hit record highs but outlook turning negative

Stocks in the United States rose last week, their fifth consecutive weekly gain, with benchmark indices hitting new record highs.

The Standard & Poor’s 500 Index rose 1.2 percent to 2,063.50. The Dow Jones Industrial Average rose 1.0 percent to 17,810.06.

Elsewhere in the world, the STOXX Europe 600 Index rose 2.9 percent but the MSCI All-Country Asia Pacific Index fell 1.3 percent.

Markets were boosted by actions by central banks last week.

The People's Bank of China announced on Friday that it was cutting one-year benchmark lending rates by 40 basis points to 5.6 percent and one-year benchmark deposit rates by 25 basis points to 2.75 percent.

Also on Friday, European Central Bank President Mario Draghi told an audience of bankers in Frankfurt that “we will do what we must to raise inflation and inflation expectations as fast as possible”, raising investors' expectations of further monetary stimulus.

Stocks are likely to continue to rally in the next few weeks as we approach the end of the year, traditionally a period in which markets do well.

However, further upside could be limited as stock valuations are already very high.

In a commentary on 13 November, the Federal Reserve Bank of San Francisco noted that the cyclically adjusted price-earnings ratio for the S&P 500 was 25.7, exceeding the long-run historical average of 16.6 and implying mildly negative real growth in stock prices over the next 10 years.

Furthermore, the ratio of New York Stock Exchange margin debt to GDP has risen to near all-time highs, and that similar sharp rises in the ratio in 1999 and 2006–07 were followed by major downturns in stock prices.

Nikkei 225 falls as Japanese economy contracts

The Nikkei 225 plunged 3.0 percent on Monday after the Japanese government reported that the economy contracted 0.4 percent in the third quarter, the second consecutive quarterly contraction.

However, US investors shrugged off the news. The S&P 500 rose 0.1 percent on Monday to close at another record high.

Stock markets survive turbulent October

Stocks rose last week, with stock indices in the United States in particular hitting new all-time highs.

The Standard & Poor's 500 Index rose 2.7 percent last week to 2,018.05 while the Dow Jones Industrial Average jumped 3.5 percent to 17,390.52, both achieving new record highs. The STOXX Europe 600 Index rose 2.9 percent while the MSCI All-Country Asia Pacific Index rose 3.1 percent.

Stock markets slipped on Wednesday after the Federal Reserve announced the end of its bond-buying programme but this event was offset by the announcement from the Bank of Japan on Friday that it was raising its annual target for asset purchases to around 80 trillion yen from 60-70 trillion yen, which helped boost stocks at the end of the week.

The diverging moves from the US and Japanese central banks highlight the divergence in the direction of their economies. While a report last week showed that the US economy grew at an annual rate of 3.5 percent in the third quarter, the BoJ's economic outlook report released shortly after its monetary policy decision last week showed that it had lowered its growth forecast to 0.5 percent for the fiscal year ending March 2015 from 1.0 percent previously.

The rally in stocks last week means that markets have mostly survived October relatively unscathed. The S&P 500 rose 2.3 in October and the MSCI All-Country Asia Pacific Index rose 1.1 percent.

Europe was the only major region to see stocks fall, with the STOXX Europe 600 declining 1.8 percent.

Blog announcement

This is just to announce that there will be minimal blogging over the next week or two.

Thank you.

Markets mixed, UK economy decelerates, US and Chinese home prices fall

Markets were mixed on Friday. The S&P 500 rose 0.7 percent to extend its gain for the week to 4.1 percent, the best since January 2013. However, the STOXX Europe 600 fell 0.3 percent to trim its weekly gain to 2.7 percent, still the best this year.

Economic data on Friday were also mixed.

The UK economy decelerated in the third quarter, growing by 0.7 percent compared with 0.9 percent in the second quarter. The services industry grew 0.7 percent in the third quarter, down from 1.1 percent in the previous quarter, while manufacturing output grew 0.4 percent, down from 0.5 percent.

In the US, new home sales rose 0.2 percent in September but data for prior months were revised down. The median sales prices fell 4 percent in September from a year ago, the first decline since April and the largest since January 2012.

Chinese home prices also fell in September. Prices fell month-on-month in a record 69 of 70 major cities monitored by the government, up from 68 in August. As a result, average home prices were down 1.3 percent in September from a year earlier, the first such drop since November 2012.

In Germany, though, GfK reported that its consumer sentiment indicator rose to 8.5 going into November from 8.4 in October.

Markets rally amid positive economic data

Markets resumed their rally on Thursday. The S&P 500 rose 1.2 percent and the STOXX Europe 600 rose 0.7 percent.

The US 10-year Treasury yield rose six basis points to 2.27 percent. Oil and copper also rose.

Positive economic data on Thursday helped boost markets.

In the US, Markit's preliminary manufacturing PMI for October showed a fall to 56.2 in from 57.5 in September but remained well in expansion territory while the Chicago Federal Reserve's national activity index jumped to +0.47 in September from -0.25 in August.

US economic growth is likely to be maintained after the Conference Board's US index of leading indicators rose 0.8 percent in September.

Economic data for the euro area on Thursday were also positive. Markit's preliminary composite PMI for the region for October showed a rise to 52.2 from 52.0 in September, with the manufacturing PMI rising to 50.7 from 50.3 and the services PMI remaining unchanged at 52.4. The European Commission's consumer confidence index for the euro area rose 0.3 points to -11.1 in October.

In China, HSBC's preliminary manufacturing PMI for October showed a rise to 50.4 from 50.2 in September.

In Japan, the Markit/JMMA flash manufacturing PMI for October showed a rise to 52.8 in October from 51.7 in September.

Unusually, the UK provided the weakest economic data among the major economies on Thursday. Retail sales fell 0.3 percent in September while mortgage approvals fell to 39,271 from 41,361 in August.

Stocks mixed as US inflation stays muted, Japan's trade deficit widens

Stocks were mixed on Wednesday. The S&P 500 fell 0.7 percent but the STOXX Europe 600 rose 0.7 percent.

Helping to boost markets on Wednesday were continued reports of the European Central Bank buying bonds, this time Spanish covered bonds, after reportedly having bought French and Portuguese securities earlier this week.

The Federal Reserve may also be able to continue to support markets with monetary stimulus after US consumer prices rose just 0.1 percent in September.

Meanwhile, though, the Bank of Japan's monetary policy has apparently helped push down the yen without helping Japan's trade balance. Japan's trade deficit rose 1.6 percent in September from the previous year. While exports rose 6.9 percent, imports also rose by 6.2 percent.

Stocks jump as investors see central bank support

Stocks rose on Tuesday. The S&P 500 jumped 2.0 percent while the STOXX Europe 600 surged 2.1 percent.

Stocks rose amid reports that the European Central Bank is considering buying corporate bonds on the secondary market beginning early next year.

Also boosting markets was a report that US existing home sales rose 2.4 percent to the highest level in a year.

Nevertheless, many think that central bank actions -- or at least words -- remain key to market direction. From Bloomberg on Tuesday:

The central-bank put lives on.

Policy makers deny its existence, yet investors still reckon that whenever stocks and other risk assets take a tumble, the authorities will be there with calming words or economic stimulus to ensure the losses are limited...

Last week as markets swooned again, it was St. Louis Federal Reserve President James Bullard and Bank of England Chief Economist Andrew Haldane who did the trick. Bullard said the Fed should consider delaying the end of its bond-purchase program to halt a decline in inflation expectations, while Haldane said he’s less likely to vote for a U.K. rate increase than three months ago.

But some think that it takes more than mere words to hold up markets.

Matt King, global head of credit strategy at Citigroup Inc., and colleagues have put a price on how much liquidity central banks need to provide each quarter to stop markets from sliding.

By estimating that zero stimulus would be consistent with a 10 percent quarterly drop in equities, they calculate it takes around $200 billion from central banks each quarter to keep markets from selling off.

There may be good news though for stocks.

The good news for investors in the eyes of Citigroup is that although the Fed is still reversing and set to end its bond-buying this month, the European Central Bank and Bank of Japan will more than compensate with more stimulus in coming months.

Stocks mixed, China's growth slowest since 2009

Stocks were mixed on Monday. The STOXX Europe 600 fell 0.5 percent but the S&P 500 rose 0.9 percent to help push the MSCI All-Country World Index up 0.7 percent.

Tuesday saw China report that its economy grew 7.3 percent in the third quarter from the previous year, down from 7.5 percent in the previous quarter and, indeed, the slowest pace since the first quarter of 2009 in the midst of the global financial crisis.

For September data, industrial production rose 8 percent from the previous year, rebounding from a more than five year low of 6.9 percent in August. Retail sales rose 11.6 percent while fixed asset investment rose 16.1 percent in the first nine months of the year when compared to the same period last year.

Stocks could fall another 50 percent or more

Do stocks have much further to fall? The Wall Street Journal's Brett Arends asks that question.

Despite Friday’s boomlet, the Dow Jones Industrial Average still closed the week down 1%, and the broader S&P 500-stock index ended also down 1%. The Dow and the S&P are down 5.2% and 6.2%, respectively, from their record highs...

Overall, the MSCI World index has fallen 10% in just a few short weeks, after hitting a record on Sept. 2...

So how much further might the market fall?

If this is merely a regular correction in the course of a regular economic expansion, the answer may be: Not much further.

Corrections of 5% to 20% are a normal part of the stock market...

Still, there are reasons for concern based on trends prevailing even before the recent turmoil.

If the global economy were turning upward, the prices of industrial commodities, such as copper and oil, would typically have been rising. Instead they were falling.

Meanwhile, if the future were rosy, long-term interest rates, a barometer of economic growth, would have been expected to go up. Instead, they have been tumbling. (The yield on 30-year Treasury bonds dipped below 3% amid last week’s market turmoil, and yields on the benchmark 10-year note were at mid-2013 levels.)

And some analysts have become quite bearish.

While the majority of big names on Wall Street still officially see the market ending the year higher, unofficially more and more are wondering if the long-awaited correction is at hand...

To these critics, stock prices could easily fall 50% from current levels, and could conceivably fare even worse...

The gloomiest prognosticator, Scottish stock-market historian and analyst Russell Napier, suggests that Wall Street might yet fall by 75% or more before the carnage is over.

Markets rise, US housing starts jump

Markets finally saw a significant rebound on Friday. The S&P 500 rose 1.3 percent and the STOXX Europe 600 jumped 2.8 percent, the biggest rise in almost three years.

The US 10-year Treasury yield rose 4 basis points to 2.20 percent, the German 10-year bund yield rose 4 basis points to 0.86 percent but the Greek 10-year bond yield fell 87 basis points to 7.93 percent.

A remark by European Central Bank executive board member Benoit Coeure on Friday suggesting that the ECB will start “within the next days” to purchase assets in the new stimulus programme helped boost investor sentiment.

So did strong US economic data on Friday. Housing starts jumped 6.3 percent in September, building permits rose 1.5 percent and the preliminary Thomson Reuters/University of Michigan consumer sentiment index for October increased to 86.4, the highest since July 2007.

S&P 500 flat as US industrial production rises

Markets stabilised somewhat on Thursday. The STOXX Europe 600 fell 0.4 percent but the S&P 500 ended flat after recovering from a 1.5 percent fall earlier in the session.

The US 10-year Treasury yield rose 2 basis points to 2.16 percent and West Texas Intermediate rose 1.1 percent.

US economic data on Thursday were mostly positive. Industrial production rose 1.0 percent in September. Initial claims for jobless benefits decreased by 23,000 to 264,000 in the week ended 11 October.

The Philadelphia Federal Reserve’s factory index dipped to 20.7 in October from 22.5 in September and the National Association of Home Builders/Wells Fargo housing market index fell to 54 in October from 59 in September.

In China, a report on Thursday showed that banks extended 857.2 billion yuan in new loans in September, up from 702.5 billion yuan in August. Aggregate financing stood at 1.05 trillion yuan in September compared with 1.4 trillion yuan a year ago.

Markets fall on growth worries

Markets fell on Wednesday.

The STOXX Europe 600 plunged 3.2 percent but the S&P 500 recovered from an early tumble to finish 0.8 percent down for the day.

The US 10-year Treasury yield fell four basis points to 2.16 percent and oil declined as Brent crude fell 1.5 percent to a four-year low.

Allianz SE chief economic adviser Mohamed El-Erian thinks that “market volatility can be expected to continue in the days and weeks to come”.

Investors' concerns appear to be focused on weak economic growth, especially after a report today showed that US retail sales fell 0.3 percent in September.

Other US data showed that the Federal Reserve Bank of New York’s Empire State Index fell to 6.2 in October from an almost five-year high of 27.5 in September and producer prices fell 0.1 percent in September.

Nevertheless, the Federal Reserve's Beige Book published on Wednesday reported that the US economy expanded at a "modest to moderate" pace across much of the nation in recent weeks.

Elsewhere in the world, reports on Wednesday showed that China's inflation rate fell to 1.6 percent in September from 2.0 percent in August, Japanese industrial production fell 1.9 percent in August, more than the 1.5 percent decline initially estimated, but the UK unemployment rate fell to 6.0 percent in the three months to August, the lowest level since the three months to October 2008.

Oil plunges, eurozone industrial production falls

Stock markets managed to stabilise somewhat on Tuesday, with the S&P 500 gaining 0.2 percent.

Oil plunged though, Brent crude falling 4.2 percent and West Texas Intermediate falling 4.6 percent to extend their bear markets.

The US 10-year Treasury yield fell 7 basis points to 2.21 percent.

However, in Europe, Greece's 10-year bond yield jumped 31 basis points to 7.01 percent on Tuesday after euro-area finance ministers clashed with the nation’s leaders over their desire to sever a bailout program.

Moving in the opposite direction, Germany's 10-year bund yield fell six basis points, touching 0.837 percent, the lowest level since Bloomberg started collecting the data in 1989.

Helping to push bond yields down on Tuesday were weak eurozone economic data.

Eurozone industrial production fell 1.8 percent in August as capital goods output fell 4.8 percent.

In Germany, the Economy Ministry reduced its 2014 economic-growth forecast to 1.2 percent from 1.8 percent and its 2015 prediction to 1.3 percent from 2 percent while the ZEW Center for European Economic Research said its index of investor and analyst expectations fell to minus 3.6 in October from 6.9 in September, the 10th monthly decline and the first negative reading since November 2012.

Elsewhere in Europe, UK inflation slowed to 1.2 percent in September from 1.5 percent in August while house prices rose 11.7 percent in August from a year ago, the same as in July.

S&P 500 falls below 200-day moving average

US stocks fell heavily again on Monday. The S&P 500 lost 1.6 percent, closing below its 200-day moving average for the first time since 2012. It has lost 4.8 percent over the past three trading sessions, the worst three-day performance since November 2011.

The Chicago Board Options Exchange Volatility Index rose 16 percent today to 24.64, the highest level since June 2012.

Earlier in the day, the STOXX Europe 600 had closed little changed.

In other markets, Brent crude oil fell 1.5 percent to the lowest since November 2010 but gold rose 0.7 percent.

The latest bout of market weakness was not driven by economic data. Indeed, probably the most significant piece of economic news on Monday was actually positive; China reported that its trade surplus in September more than doubled from the previous year as exports rose 15.3 percent and imports rose 7.0 percent, much better than August's 9.4 percent increase and 2.4 percent decrease respectively.

Markets tumble as volatility surges

Markets fell last week amid concern over global economic growth.

The MSCI All-Country index tumbled 2.7 percent last week. The Standard & Poor's 500 Index fell 3.1 percent and the STOXX Europe 600 Index fell 4.1 percent, both these indices suffering the biggest weekly decline since May 2012. The MSCI Asia Pacific Index fell 1.1 percent.

The US 10-year Treasury yield fell 14 basis points last week to 2.29 percent, at one point hitting 2.28 percent, the lowest in more than 15 months.

Oil entered a bear market as both West Texas Intermediate and Brent crude fell last week by 4.4 percent and 2.3 percent respectively.

The weakness in markets contrasted with the positive economic reports for the United States economy last week. Mortgage applications rose 3.8 percent in the week ended 3 October while initial claims for unemployment benefits fell by 1,000 in the same week, pushing the four-week average down to 287,750, the lowest since February 2006.

Unfortunately, economic data elsewhere were not so positive.

In the euro area, German industrial production fell 4.0 percent in August, factory orders fell 5.7 percent and exports plunged 5.8 percent.

In China, Markit's composite index fell to 52.3 in September from 52.8 in August.

In Japan, the leading index fell to 104.0 in August from 105.4 in July and the coincident index fell to 108.5 from 109.9. The economy watchers survey's current conditions index was unchanged at 47.4 in September but the future conditions index fell to 48.7 from 50.4 in August.

One bright spot was in core machinery orders, which rose 4.7 percent in August, the third consecutive increase.

Still, the increase in volatility in markets has raised concerns for the outlook. After the US trading session last Thursday, Bloomberg reported:

This week’s vortex in equities is a sign of things to come for Donald Selkin, the chief market strategist for National Securities Corp.

Three days of Standard & Poor’s 500 Index swings exceeding 1.5 percent have sent the Chicago Board Options Exchange Volatility Index up 21 percent since Oct. 6 to 18.8, a level not seen since February. About $800 billion has been erased from U.S. equities in three weeks as the average size of daily moves in the S&P 500 almost doubled.

The surging VIX, which usually moves in the opposite direction as the S&P 500, is “a dangerous sign because we’ll have broken through some resistance,” Selkin, whose firm oversees about $3 billion, said by phone. “In a sense, if we don’t hold here, then we could see the next resistance level around 21, which would take us down another couple hundred points.”

The VIX duly hit 21.24 on Friday.

Also, from the Bloomberg article:

For traders guided by price charts, a bigger test for the S&P 500 is looming about 1 percent below its level now, at 1,909, according to Ryan Detrick, a Cincinnati-based strategist at investment research firm See It Market. That’s where the index bottomed on Aug. 7 before starting a 5 percent rally.

“That August low is a big level, and you have the 200-day moving average down there as well,” at 1,905, he said. “We’re getting to the area where we’ve seen bounces before. The area down there looms large, and with small-caps already broken down, you’d like to see large-caps gain some kind of footing.”

And again, the price test was also challenged on Friday, with the S&P 500 falling to 1,906.13.

It looks like Friday's close has set up an interesting week for the US stock market this week. Whether it bounces up from here or continue to decline could point to the medium-term outlook for stocks.

Stocks fall again

Stocks fell again on Friday. The MSCI All-Country World Index fell 1.6 percent while the S&P 500 fell 1.1 percent.

The yield on the US 10-year Treasury fell 2 basis points to 2.29 percent but West Texas Intermediate oil closed little changed after earlier dropping as much as 2.5 percent.

A report on Friday showed that Japan's consumer confidence index fell to 39.9 in September from 41.2 in August.

Data from the UK on Friday were also negative. Construction output fell 3.9 percent in August. The trade deficit narrowed in August but with both exports and imports falling by 2.3 percent and 6.2 percent respectively.

Markets fall, German exports plunge

The rally in US stocks on Wednesday proved short-lived. The S&P 500 fell 2.1 percent on Thursday while the Russell 2000 tumbled 2.7 percent.

European stocks fell for the third consecutive day on Thursday, with the STOXX Europe 600 declining 0.4 percent.

West Texas Intermediate crude oil also fell for a third day, declining 1.8 percent to the lowest since April 2013.

Meanwhile, the Bank of England left monetary policy unchanged at its meeting on Thursday.

The European Central Bank, though, is still looking at expanding monetary stimulus. ECB President Mario Draghi said in a speech at the Brookings Institution in Washington on Thursday that the ECB “is unanimous in its commitment to take additional unconventional measures to address the risks of a too-prolonged period of low inflation”.

And the ECB may need to do just that soon. A report on Thursday showed that German exports plunged 5.8 percent in August, the biggest decline since January 2009, while imports fell 1.3 percent.

This report followed data earlier this week showing that German industrial production fell 4.0 percent in August while factory orders fell 5.7 percent.

S&P 500 rebounds, Asian economic data mixed

Markets were mixed on Wednesday. European and Asian stocks fell but the S&P 500 rose 1.7 percent after a strong rally in the latter part of the trading session.

Earlier in the day, data from HSBC showed that its China services index fell to 53.5 in September from 54.1 in August, indicating continued albeit slower expansion in the sector. The composite index fell to 52.3 from 52.8.

Japanese data on Wednesday were mixed.

Japan's current account surplus expanded 82.7 percent in August from a year earlier thanks to increased returns on foreign investment despite a wider trade deficit.

However, the economy watchers survey showed that the future conditions index fell to 48.7 in September from 50.4 in August while the current conditions index was unchanged at 47.4.

Encouragingly, though, a report on Thursday showed that Japan's core machinery orders rose 4.7 percent in August from the prior month. It was the third consecutive increase in orders.

Markets fall as IMF cuts growth forecast, BoJ maintains monetary policy

Markets fell on Tuesday. The S&P 500 and the STOXX Europe 600 both fell by 1.5 percent. Oil fell 1.7 percent. The US 10-year Treasury yield fell eight basis points to 2.34 percent.

The market declines came as the International Monetary Fund cut its outlook for global growth in 2015 to 3.8 percent in its latest World Economic Outlook. This compares with a 4.0 percent forecast in July. Growth is expected to be 3.3 percent this year.

The Bank of Japan is also looking less optimistic. While maintaining its pledge of increasing base money at an annual pace of 60-70 trillion yen, it also noted that factory output was weakening.

Indeed, a report on Tuesday showed that Japan's leading index fell to 104.0 in August from 105.4 in July while the coincident index fell to 108.5 from 109.9.

Meanwhile, a report from Germany on Tuesday showed that industrial production there fell 4.0 percent in August, the biggest decline since January 2009, while in the UK, industrial production was unchanged in August as manufacturing output rose 0.1 percent.

Brazilian stocks jump, currency rebounds

Stocks rose on Monday, with the MSCI All-Country World Index climbing 0.4 percent.

Brazil’s Ibovespa in particular jumped 4.7 percent after Aecio Neves won a surprise second-place finish in voting at the weekend to force a runoff election with President Dilma Rousseff.

The Brazilian real appreciated 1.3 percent to 2.4272 per US dollar, rebounding from a five-year intraday low of 2.5073 per dollar on Friday.

The STOXX Europe 600 rose 0.2 percent on Monday but the S&P 500 bucked the trend by falling 0.2 percent.

European stocks rose despite weak economic data on Monday.

Markit reported that its eurozone retail PMI fell to 44.8 in September from 45.8 in August.

And in the euro area's largest economy, Germany, factory orders fell 5.7 percent in August, the most since 2009.

Stocks gain as US employment jumps but services sector slows

Stocks rose strongly on Friday. The S&P 500 gained 1.1 percent and the STOXX Europe 600 rose 1.0 percent.

A strong US employment report on Friday helped boost stocks. The Labor Department reported that non-farm payrolls rose 248,000 in September while the unemployment rate fell to 5.9 percent, the lowest level since July 2008, from 6.1 percent in August.

Another report on Friday showed that the US trade deficit shrank 0.5 percent in August but a report from the Institute for Supply Management showed that its non-manufacturing index fell to 58.6 in September from 59.6 in August.

The US services sector slowdown was confirmed by Markit, whose index for the sector also fell to 58.9 in September from 59.5 in August, pushing the composite PMI down to 59.0 from 59.7.

The eurozone services sector also slowed in September. A report from Markit on Friday showed that its services PMI for the region fell to 52.4 last month from 53.1 in August, pushing the composite index down to 52.0 from 52.5.

More encouragingly, another report on Friday showed that eurozone retail sales jumped 1.2 percent in August, rebounding from a 0.4 percent fall in July.

Elsewhere in Europe, the Markit/CIPS services PMI for the UK fell to 58.7 in September from 60.5 in August. The composite fell to 58.1 from 59.7.

In China, the National Bureau of Statistics reported on Friday that its non-manufacturing PMI fell to 54.0 in September from 54.4 in August.

In contrast, Japan's services sector moved back into expansion as Markit's services PMI jumped to 52.5 in September from 49.9 in August. That helped push the composite index up to 52.8 from 50.8.

ECB to buy covered bonds and asset-backed securities

European Central Bank President Mario Draghi laid out plans on Thursday to buy debt as part of the central bank's latest stimulus programme. Reuters reports:

He outlined an ECB program to buy reparceled debt known as asset-backed securities as well as covered bonds, secured on solid assets such as property, and raised the prospect of bolstering this market and, in turn, lending.

It is a scheme that will start in mid-October for covered bonds, with other purchases of asset backed securities following before the end of the year. Draghi said the potential 'universe' for the type of debt that the ECB was interested in was up to 1 trillion euros, although ECB buys may not be that high.

Meanwhile, in the US, the Commerce Department reported on Thursday that factory orders fell 10.1 percent in August, the biggest decline on record, as aircraft orders reversed the jump in July. Excluding transportation equipment, orders fell 0.1 percent.

Stocks fall, global manufacturing slows

Stocks fell on Wednesday. The S&P 500 tumbled 1.3 percent while the STOXX Europe 600 fell 0.8 percent. The US 10-year Treasury yield fell 10 basis points to 2.39 percent.

Economic data on Wednesday were mostly uninspiring.

US data showed that manufacturing growth slowed in September. Markit's US manufacturing PMI slipped to 57.5 last month from 57.9 in August while the Institute for Supply Management’s index fell to 56.6 from 59.0.

Other US data on Wednesday showed that the private sector added 213,000 workers in September but construction spending fell 0.8 percent in August.

In the euro area, Markit reported on Wednesday that its manufacturing PMI for the region fell to 50.3 in September from 50.7 in August. The new orders sub-index fell to 49.3 from 50.7.

Another report on Wednesday showed that the Markit/CIPS UK manufacturing PMI fell to 51.6 in September, its lowest level since April last year, from 52.2 in August.

In China, the National Bureau of Statistics reported on Wednesday that its manufacturing PMI was 51.1 in September, unchanged from the previous month.

However, the Markit/JMMA Japan manufacturing PMI fell to 51.7 in September from 52.2 in August.

Also in Japan on Wednesday, the Bank of Japan's Tankan survey had provided a mixed picture. While the index for large manufacturers rose to plus 13 in the third quarter from plus 12 in the previous quarter, the index for large companies in the non-manufacturing sector tumbled to plus 13 from plus 19.

US consumer confidence and home prices fall, eurozone inflation slows

Global economic data on Tuesday were mostly negative.

In the US, the Conference Board's consumer confidence index fell to 86.0 in September from 93.4 the month before, the S&P/Case Shiller composite index of home prices in 20 metropolitan areas rose 6.7 percent in July from the previous year but fell 0.5 percent from the previous month, and the Institute for Supply Management-Chicago business barometer fell to 60.5 in September from 64.3 in August.

In the euro area, inflation slowed further to 0.3 percent in September from 0.4 percent in August while the unemployment rate was unchanged at 11.5 percent in August.

In China, HSBC's manufacturing PMI was unchanged at 50.2 in September from the previous month but was below the preliminary reading of 50.5.

In Japan, industrial production fell 1.5 percent in August, household spending fell 4.7 percent in August from a year earlier and the unemployment rate fell to 3.5 percent in August from 3.8 percent in July.

In the UK, the economy grew 0.9 percent in the second quarter, up from 0.7 percent in the first quarter, but house prices fell 0.2 percent in September after rising 0.8 percent in August.

US consumer spending rises, eurozone economic sentiment falls

There were mixed data on the US economy on Monday. US consumer spending rose 0.5 percent in August and income rose 0.3 percent. However, pending home sales fell 1.0 percent in August.

In the euro area, the European Commission reported on Monday that its economic sentiment indicator for the region fell to 99.9 in September from 100.6 in August.

In the UK, data on Monday showed that mortgage approvals fell to 64,212 in August from 66,100 in July, lending to non-financial businesses increased by 817 million pounds last month and unsecured lending to consumers rose by 898 million pounds. A GfK report on Tuesday showed that its UK consumer confidence index fell to -1 in September from +1 in August.

Global leverage still growing, led by emerging economies

The 16th Geneva Report on the World Economy by Luigi Buttiglione, Philip Lane, Lucrezia Reichlin and Vincent Reinhart says that the world economy has not deleveraged.

Contrary to widely held beliefs, the world has not yet begun to delever. Global debt-to-GDP is still growing, breaking new highs...

[G]lobal debt accumulation was:
• Led by developed economies until 2008; but
• Has been led by emerging economies since 2008; the sharp rise in Chinese debt is especially striking.

These emerging markets as a group are an important source of concern in terms of future debt trajectories. China and the so-called ‘fragile eight’ could find themselves in the unwanted role of ‘host’ to the next phase of the global leverage crisis.

The authors further note that the world is seeing low growth and inflation rates. Therefore, they recommend caution on interest rate rises, adding that the European Central Bank in particular “should catch up with the other major central banks in an aggressive policy of quantitative easing”.

Beyond monetary policy, the authors also address the fiscal challenges, the scope for macro-prudential policies, the restructuring of private-sector debt and sovereign debt, and enhanced international policy co-operation in addressing excessive global leverage.

Stocks rebound as US growth revised up

Stocks rebounded on Friday. The S&P 500 in particular rose 0.9 percent. The STOXX Europe 600 gained 0.3 percent. US 10-year Treasury yields rose three basis points to 2.53 percent.

Stocks were boosted by revised data on US GDP on Friday, which showed that the economy grew at a 4.6 percent annualised rate in the second quarter, faster than the previous estimate of 4.2 percent. Corporate profits before tax rose 8.4 percent last quarter, the most since the third quarter of 2010.

Another report from the US on Friday showed that the Thomson Reuters/University of Michigan consumer sentiment index increased to 84.6 in September from 82.5 in August, confirming a preliminary reading.

However, in Germany, a survey by GfK showed its consumer confidence index falling to 8.3 in October from 8.6 in September.

Early on Friday, Japan had reported that its consumer price inflation excluding fresh food slowed to 3.1 percent in August from 3.3 percent in July. Excluding the impact of the sales tax increase in April, the rise in core consumer prices was 1.1 percent, well below the Bank of Japan's 2.0 percent inflation target for next year.

Markets fall, US durable goods orders plunge

Markets fell on Thursday. The S&P 500 fell 1.6 percent while the STOXX Europe 600 fell 0.9 percent. The yield on US 10-year Treasuries fell 6 basis points to 2.51 percent.

Economic data on Thursday were mixed.

US durable goods orders plunged a record 18.2 percent in August after jumping 22.5 percent the prior month.

Driving the fluctuation were orders for transport equipment. Orders for civilian aircraft fell 74.3 percent in August after jumping 315.6 percent the previous month while orders for automobiles fell 6.4 percent last month after rising 10.0 percent a month earlier.

Encouragingly, orders for non-defense capital goods excluding aircraft rose 0.6 percent in August after falling 0.2 percent in July.

Also on Thursday, Markit reported that its flash US services PMI showed a fall to 58.5 in September from 59.5 in August. That pulled the composite PMI down to 58.8 in September from 59.7 in August.

Meanwhile, in the euro area, the European Central Bank reported that M3 money supply rose 2.0 percent in August from a year earlier, up from 1.8 percent in July. Loans to the private sector fell 1.5 percent, albeit better than the 1.6 percent fall in July.

Stocks rebound as US new home sales surge

Stocks rebounded on Wednesday.

The S&P 500 rose 0.8 percent after three consecutive declines. The STOXX Europe 600 rose 0.7 percent after falling 1.4 percent on Tuesday, the biggest decline since 8 July. The Shanghai Composite Index rose 1.5 percent to the highest level since March 2014.

The yield on US 10-year Treasuries rose 4 basis points to 2.57 percent while oil jumped 1.4 percent.

Helping to boost investor sentiment was a report on Wednesday showing that US new home sales surged 18.0 percent in August to a 504,000 annualised pace, the strongest since May 2008.

However, on a negative note, the Ifo institute reported on Wednesday that its business climate index for Germany fell to 104.7 in September from 106.3 in August.

Stocks fall amid mixed purchasing managers' data

Stocks fell on Tuesday. The S&P 500 declined 0.6 percent while the STOXX Europe 600 tumbled 1.4 percent.

The US 10-year Treasury yield fell 4 basis points to 2.53 percent but West Texas Intermediate oil rose 0.8 percent while gold rose 0.3 percent.

Purchasing managers' data on Tuesday were mixed.

In the US, Markit's preliminary manufacturing PMI for September was 57.9, unchanged from August and the highest in more than four years.

In China, HSBC's preliminary manufacturing PMI for September came out at 50.5, up from 50.2 in August.

However, in the euro area, Markit's composite index fell to 52.3 in September from 52.5 in August. The services index fell to 52.8 from 53.1 while the manufacturing index fell to 50.5 from 50.7.

And on Wednesday, a report from Japan showed that the Markit/JMMA flash manufacturing PMI for September indicated a fall to 51.7 from 52.2 in August.

Markets fall amid negative US and eurozone economic data

Markets fell on Monday. The S&P 500 fell 0.8 percent, the STOXX Europe 600 fell 0.5 percent and the MSCI AC Asia Pacific Index fell 0.8 percent.

The US 10-year Treasury yield declined 1 basis point to 2.56 percent. Copper and Brent crude fell 1.7 percent.

Economic data on Monday were negative.

In the US, the Chicago Fed national activity index fell to -0.21 in August from +0.26 in July, pushing the three-month moving average down to +0.07 from +0.20. Existing home sales fell 1.8 percent.

In the euro area, the European Commission's consumer confidence indicator fell for a fourth consecutive month to -11.4 in September from -10.0 in August as European Central Bank President Mario Draghi told the European parliament that the central bank stands “ready to use additional unconventional instruments within our mandate”.

G20 to boost growth but warns of risk in financial markets

The Group of 20 meeting of finance ministers and central bank chiefs over the weekend focused on boosting global economic growth.

“We are determined to lift growth, and countries are willing to use all our macroeconomic levers – monetary, fiscal and structural policies – to meet this challenge,” said Australian Treasurer Joe Hockey, who hosted the event.

However, it was also mindful of the risk arising from monetary stimulus, according to a Bloomberg report.

“We are mindful of the potential for a build-up of excessive risk in financial markets, particularly in an environment of low interest rates and low asset price volatility,” the meeting communique said.

The following are some pertinent statistics cited by Bloomberg:

• The Standard & Poor’s 500 Index is in the midst of its longest streak of quarterly gains since 1998, rising last week to a record.
• The Chicago Board Options Exchange Volatility Index ended last week at 12.11, 36 percent below its average of the past five years.
• Japan’s Nikkei Stock Average Volatility Index fell to 16.69 last week, 31 percent below its five-year average.
• The extra return investors demand to hold corporate bonds instead of sovereign securities is at 109 basis points, near the seven-year low of 105 reached in June, according to a Bank of America Merrill Lynch Global Corporate Index.

US and Japanese leading indices rise

Markets were mixed on Friday. The STOXX Europe 600 Index rose 0.2 percent but the S&P 500 fell less than 0.1 percent from its record high closing on Thursday as the US Dollar Index rose for a 10th straight week, the longest since at least March 1967.

Notwithstanding the decline in US stocks on Friday, the US economy is likely to continue to grow in the next few months. A report on Friday showed that the Conference Board's US leading economic index rose 0.2 percent in August after having risen 1.1 percent in July.

Japan's economy also appears likely to maintain growth. Another report on Friday showed that Japan's leading index rose to 105.4 in July -- down from an initial estimate of 106.5 -- from 104.7 in June. The coincident index was unrevised at 109.9, up from 109.3 in June.

Stocks rise, US housing starts fall

Stocks rose on Thursday. The S&P 500 gained 0.5 percent to hit a new record high. The STOXX Europe 600 rose 1.0 percent.

US stocks rose despite a report on Thursday showing that housing starts fell 14.4 percent in August. The decline came after starts had hit a 1.12-million unit rate in July, the highest since November 2007.

Building permits fell 5.6 percent in August.

China's housing market is also looking weak. A report on Thursday showed that average new home prices across China fell 1.1 percent in August, with prices falling in 68 of the 70 major cities monitored, up from 64 cities in July.

In Japan, a report on Thursday showed that exports fell 1.3 percent in August from a year ago. Imports fell 1.5 percent.

Nevertheless, the trade balance remained in deficit for the 26th consecutive month despite a falling yen, possibly an indication of why three quarters of Japanese firms now prefer a stronger yen.

Meanwhile, though, there were positive data on the UK economy. A report on Thursday showed that UK retail sales rose 0.4 percent in August, driven by strong sales of furniture and a rush to buy high-powered vacuum cleaners ahead of a European Union ban.

Fed to keep rates low as US consumer prices fall

The Federal Reserve looks set to keep interest rates low for a considerable time.

After the Fed's monetary policy meeting on Wednesday, Chair Janet Yellen told a press conference that US unemployment remains too high and inflation too low.

While Fed officials raised their median estimate for the benchmark federal funds rate to 1.375 percent at the end of 2015 compared with a June forecast of 1.125 percent, Yellen told the press conference: “Even after employment and inflation are near mandate-consistent levels, economic conditions may for some time warrant keeping the target federal funds rate below levels the committee views as normal in the longer run.”

And while the Fed decided to cut monthly bond buying by $10 billion to $15 billion at the latest meeting, Yellen said it could take to the “end of the decade” to reduce the Fed’s holdings “to the lowest levels consistent with the efficient and effective implementation of policy.”

Yellen's view of inflation was supported by data on Wednesday, which showed that consumer prices fell 0.2 percent in August, although the housing market continues to recover, with the National Association of Home Builders/Wells Fargo housing market index rising to 59 in September from 55 in August.

Data from the euro area on Wednesday showed that inflation there was also low. Consumer prices there rose 0.4 percent in August from a year ago, the same rate as in July but slightly higher than the initial estimate of 0.3 percent.

Meanwhile, the employment picture in the UK improved in July. A report on Wednesday showed that the unemployment rate fell to 6.2 percent in the May-July period, the lowest level since the September-November 2008 period, while average weekly earnings rose 0.6 percent from the previous year.

Inflation stays low in US and UK even as asset markets look frothy

Reports on Tuesday suggest that US inflation is likely to stay low for the near term.

US producer prices were flat in August. Prices were restrained by falls in the prices of gasoline and food.

In addition, US median household income edged up just $180 last year to $51,939.

Across the Atlantic, a report on Tuesday showed that UK inflation eased to 1.5 percent in August from 1.6 percent in July.

However, while consumer price inflation has been muted in most economies, asset prices have been rising rapidly.

Another report from the UK on Tuesday showed that house prices rose 11.7 percent in the year to July, the fastest rate of increase in seven years.

This report comes in the wake of the Bank for International Settlements’ quarterly review, which had noted “elevated asset price valuations and exceptionally subdued volatility” around the world.

A recent Bloomberg report says that an emerging-market bond fever is worrying the BIS, whose report noted that yields on developing nations’ 10-year local-currency bonds fell to about 5.8 percent at the end of August, about 0.5 percentage point less than February levels.

The flow of money into emerging-market assets could be potentially destabilising.

Investors tend to move in herds in these markets, “accentuating both booms and busts,” BIS analysts Ken Miyajima and Ilhyock Shim wrote in a report this month. While foreign investors may boost growth now, “this comes at a price,” they wrote.

But there is potential for instability in the US as well.

Sober Look noted last week that “US middle market leveraged buyout (LBO) transactions are becoming increasingly frothy”, with data showing that “risk-return fundamentals in the space are worse than they were in 2007”.

OECD cuts growth forecasts as US industrial production falls, BIS sees asset prices as elevated

The Organisation for Economic Co-operation and Development lowered its growth forecasts for the major economies on Monday.

The eurozone economy is now expected to grow 0.8 percent this year, down from 1.2 percent in May, while the US economy is expected to grow 2.1 percent instead of 2.6 percent.

The OECD expects these economies to accelerate in 2015, with the eurozone economy expanding 1.1 percent and the US economy expanding 3.1 percent.

Japan's economy is expected to grow 0.9 percent this year and 1.1 percent in 2015, while China's economy is forecast to grow 7.4 percent and 7.3 percent.

Also on Monday, data from the Federal Reserve showed that US industrial production fell 0.1 percent in August, with manufacturing output declining 0.4 percent as car production fell 7.6 percent.

Over the weekend, China had reported that industrial production rose 6.9 percent in August from the previous year, sharply lower than the 9.0 percent growth in July and the weakest growth since December 2008.

Other data released over the weekend showed that Chinese retail sales rose 11.9 percent in August from the previous year, down from 12.2 percent in July, while fixed asset investment rose 16.5 percent in the first eight months of this year from the corresponding period last year, down from the 17.0 percent increase for the first seven months.

Also over the weekend, another international body, the Bank for International Settlements, released its quarterly review.

In the review, the BIS noted that financial market volatility spiked higher in August on the back of geopolitical concerns and worries over economic growth but quickly returned to “exceptional lows” across most asset classes.

“By fostering risk-taking and the search for yield, accommodative monetary policies thus continued to contribute to an environment of elevated asset price valuations and exceptionally subdued volatility,” the BIS said.

Rally in stocks ends as Fed prepares to meet

After rallying for the past few weeks, stock markets finally fell last week.

The Standard & Poor’s 500 Index fell 1.1 percent to 1,985.54 last week, the STOXX Europe 600 Index fell 0.9 percent and the MSCI Asia Pacific Index fell 1.8 percent.

After last week's moves, the S&P 500 now trades at 16.6 times estimated earnings, the STOXX Europe 600 at 15.5 and the MSCI Asia Pacific at 13.7.

While stock market valuations may not look unduly stretched at the moment, a rise in interest rates could still put additional pressure on stock prices.

The Federal Reserve meets to decide on monetary policy on 16-17 September. While it will almost certainly not increase interest rates at this meeting, the probability that the Federal Reserve will tighten monetary policy soon was raised just a little last week after some positive data for the United States economy.

A report on Friday showed that US retail sales rose 0.6 percent in August while another report showed that the Thomson Reuters/University of Michigan consumer sentiment index rose to 84.6 in September from 82.5 in August.

The euro area also saw positive economic data last week. Reports on Friday showed that industrial production rose 1.0 percent in July while employment rose 0.2 percent in the second quarter.

Data from the two major economies in Asia last week were mixed though.

In China, reports last week showed that bank lending nearly doubled in August from the previous month but imports fell and export growth slowed while inflation eased to 2.0 percent in August from 2.3 percent in July.

Japan last week revised its second quarter GDP report to show a larger contraction of 1.8 percent compared to the initial estimate of a 1.7 percent contraction. Adding to the negatives, the consumer confidence index fell to 41.2 in August from 41.5 in July while the diffusion indices from the economy watchers survey showed deterioration in service sector sentiment last month as well.

More positively for Japan, other reports last week showed that core machinery orders rose 3.5 percent in July and the business outlook survey showed large improvements in business leaders' assessment of the economy in the third quarter compared to the previous quarter.

US retail sales and consumer confidence rise, eurozone industrial production rebounds

Economic data on Friday were positive.

In the US, retail sales rose 0.6 percent in August after rising 0.3 percent in July.

And US consumer spending could improve further after another report on Friday showed that the preliminary September reading of the Thomson Reuters/University of Michigan consumer sentiment index indicated a rise to 84.6 from 82.5 in August.

In the euro area, industrial production rose 1.0 percent in July after falling 0.3 percent the previous month.

Another report showed that eurozone employment rose 0.2 percent in the second quarter.

In China, a report showed that bank lending rose to 702.5 billion yuan in August, nearly twice July's 385.2 billion yuan.

Total social financing, a broader gauge of credit in the economy, reached 957.4 billion yuan in August, more than tripling the 273.1 billion yuan in July.

Inflation eases in China, steady in Germany

A report on Thursday showed that inflation in China eased to 2.0 percent in August from 2.3 percent in July.

Overall food prices drove inflation, rising 3.0 per cent from a year ago. Fresh fruit and eggs in particular saw double-digit price increases.

Another report on Thursday showed that China's producer price index fell 1.2 percent in August from a year ago, more than the 0.9 percent decline in July.

Meanwhile, a report from Germany showed that inflation there held steady at 0.8 percent in August, its lowest level since February 2010.

US growth forecast cut on weak inventory gain, Japanese machinery orders and business sentiment rise

A report on Wednesday showed that US wholesale inventories edged up 0.1 percent in July, the smallest rise since July of last year, after a 0.2 percent gain in June. This was well below the 0.5 percent increase expected by economists.

Some economists lowered their GDP growth forecasts for the third quarter following the report. Barclays cut its third-quarter growth forecast by 0.2 percentage point to a 2.5 percent annual rate. Action Economics lowered its forecast to a 2.8 percent rate from 3.0 percent.

Data from Japan, however, have been more positive.

A report from Japan on Wednesday showed that core machinery orders rose 3.5 percent in July. Orders had jumped 8.8 percent in June following a 19.5 percent plunge in May.

A report from Japan on Thursday showed that the business sentiment index for large manufacturing rose to 12.7 in the third quarter from -13.9 in the second quarter. For all industries, the BSI rose to 11.1 from -14.6.

Japanese consumer confidence falls, UK industrial output rises, Chinese and German trade surpluses hit record highs

Consumer confidence in Japan deteriorated in August. A report on Tuesday showed that the consumer confidence index fell to 41.2 last month from 41.5 in July.

In the UK, a report on Tuesday showed that industrial production rose 0.5 percent in July, the most in six months, but another report showed that the goods trade deficit rose to 10.186 billion pounds in July.

In contrast, Monday had seen both China and Germany report record trade surpluses.

China's trade surplus surged to a record US$49.8 billion in August as imports fell for a second straight month while export growth slowed.

Germany's trade surplus hit a record high of 22.2 billion after exports jumped 4.7 percent while imports fell 1.8 percent.

Japan's economy shrinks, service sector sentiment worsens

A report on Monday showed that Japan's economy shrank 1.8 percent in the second quarter, more than the initially-estimated 1.7 percent.

The revision was largely due to a bigger than expected fall in capital expenditure and a deeper decline in consumer spending.

Another report on Monday showed that the current account returned to surplus in July, coming in at 416.7 billion yen compared to a deficit of 399.1 billion yen in June.

However, a third report showed that service sector sentiment worsened in August, with the economy watchers survey's current conditions index falling to 47.4 in August from 51.3 in July. The future conditions index fell to 50.4 last month from 51.5 in July.

US jobs gain hits a low, S&P 500 hits a high

The recent run of strong US economic data ended on Friday with the jobs report, which showed that US employment rose by 142,000 in August, the smallest gain this year.

The unemployment rate fell to 6.1 percent from 6.2 percent in July partly because people dropped out of the labour force.

Economists were mostly unperturbed by the weak data though.

“The shortfall in payrolls is disappointing, but it sure looks like a fluke, not a trend,” said Diane Swonk, chief economist at Mesirow Financial.

Indeed, US stocks rose on Friday. The S&P 500 gained 0.5 percent to hit a new record high.

In contrast, the STOXX Europe 600 fell 0.4 percent despite a report on Friday showing that German industrial production rose 1.9 percent in July, the biggest increase since March 2012.

Another report from Europe on Friday confirmed that the eurozone economy stagnated in the second quarter as investment fell for the first time in more than a year.

A report from Japan, though, provided some hope that its economic recovery will resume.

The Cabinet Office reported on Friday that its leading index rose to 106.5 in July from 105.9 in June. The coincident index edged up to 109.9 from 109.7.

ECB cuts rates, announces asset purchases

The European Central Bank cut interest rates at its monetary policy meeting on Thursday.

All three of the ECB's main interest rates were lowered by 10 basis points, with the benchmark rate being cut to 0.05 percent.

In addition, ECB President Mario Draghi announced at a press conference after the meeting that the central bank “will purchase a broad portfolio of simple and transparent securities” as it sees “the risks around the economic outlook on the downside”.

The ECB decision to inject additional monetary stimulus comes even as a report on Thursday showed that the euro area's largest economy, Germany, saw factory orders rebound 4.6 percent in July after having fallen 2.7 percent in June.

Two other major central bank monetary policy meetings on Thursday ended relatively uneventfully. Both the Bank of Japan and the Bank of England left their monetary policies unchanged after their meetings.

There was no central bank meeting in the US on Thursday but generally positive economic reports that day suggest that the Federal Reserve is more likely to remove monetary stimulus than add to it.

A report from Markit showed that its US services PMI dipped to 59.5 in August from 60.8 in July. This pulled the composite index down to 59.7 last month from 60.6 the previous month.

However, both indices remain well above the 50 mark that signals expansion in activity.

Other US data on Thursday were even more positive.

The Institute for Supply Management's services index rose to 59.6 in August, the highest reading since its inception in January 2008, from 58.7 in July.

ADP reported that private-sector payrolls increased by 204,000 last month after rising by 212,000 in July. The increase in August was the fifth straight month of gains above 200,000.

The trade deficit narrowed in July after exports rose 0.9 percent to a record high while imports rose 0.7 percent.

US economy expands, eurozone growth slows

Data on Wednesday painted a brighter picture for the US economy.

In its latest Beige Book, the Federal Reserve reported that US economic activity continued to expand in recent weeks, with manufacturing expanding across a broad base of sectors and auto sales hitting “high levels”.

That report was corroborated by other data on Wednesday. New orders for manufactured goods jumped 10.5 percent in July, a record monthly gain, while auto sales rose to an annual rate of 17.53 million units in August, the highest since January 2006.

In contrast, data on Wednesday showed that growth in the euro area slowed in August. Markit's composite PMI fell to an eight-month low of 52.5 last month from 53.8 in July as the services PMI fell to 53.1 from 54.2. In addition, eurozone retail sales fell 0.4 percent in July.

However, in China, services activity rebounded in August. The HSBC/Markit services PMI jumped to 54.1 last month 50.0 in July while the official non-manufacturing PMI rose to 54.4 from 54.2 in July.

In Japan, Markit's services PMI fell to 49.9 in August from 50.4 in July. Nevertheless, the composite PMI rose to 50.8 from 50.2.

And in the UK, the Markit/CIPS services PMI rose to 60.5 in August from 59.1 in July.

US manufacturing accelerates

In contrast to most of the rest of the world, US manufacturing appears to have done well in August, based on data released on Tuesday.

The Institute for Supply Management's manufacturing PMI rose to 59.0 last month, the highest reading since March 2011, from 57.1 in July.

Markit's US manufacturing PMI rose to 57.9, the highest level since April 2010, from 55.8 in July.

In further good news for the US economy, another report on Tuesday showed that construction spending rose 1.8 percent in July to a 5½ year high.

The data helped the US dollar rise 0.7 percent against the yen and pushed the US 10-year Treasury yield up seven basis points to 2.42 percent.

However, the S&P 500 fell 0.1 percent from its record high.

Manufacturing slows in most of Europe and Asia

Data on Monday showed that manufacturing activity continued to expand in Europe and Asia in August but mostly at a slower pace.

In the euro area, Markit's manufacturing PMI fell to 50.7 in August from 51.8 in July.

In the UK, the Markit/CIPS manufacturing PMI fell to 52.5 in August from 54.8 in July.

Another report from the UK on Monday showed that mortgage approvals fell slightly in July

In China, the official manufacturing PMI fell to 51.1 in August from 51.7 in July while the HSBC PMI fell to 50.2 from 51.7.

Japan was an exception among the major economies reporting manufacturing data on Monday. The Markit/JMMA manufacturing PMI rose to 52.2 in August from 50.5 in July.

However, another report from Japan on Monday showed that capital spending fell 1.8 percent in the second quarter.

Stocks and bonds rally: Are markets getting overpriced?

Markets rallied in August.

The MSCI All-Country World Index jumped 2.0 percent last month, the Standard & Poor’s 500 Index surged 3.8 percent to a record high and the STOXX Europe 600 Index rose 1.8 percent.

Bonds also rose. The United States 10-year note yield fell 21 basis points in August to 2.34 percent as yields in Europe collapsed to record lows. The German 10-year bund yield reached 0.866 percent on 28 August while the French 10-year government-bond yield fell to 1.217 percent.

The US 10-year note yield exceeded those of its Group of Seven counterparts by 79 basis points on 26 August, the most since June 2007, according to Bloomberg.

Jim Hamilton at Econbrowser looked at the longer term trend in bond yields and noted that, apart from a rebound in the spring of 2013, the general trend since the end of the Great Recession has been down.

Once you correct for pricing of risk, it looks like investors have been anticipating a negative real rate well into the future ever since the end of the recession. Expectations lifted in the first half of 2013, but have been falling sharply this year.

What could produce such a pattern? It’s hard to attribute it to changing perceptions about the Fed, which should surely matter more for the next 5 years than they would for 5 to 10 years from now. More confidence that the U.S. government will be able to keep debt from growing relative to GDP over the next decade may have played a role.

Another possibility is that more people are starting to take seriously the suggestion that we’re on a path now of secular stagnation with weak economic growth and poor investment opportunities over the next decade. But that’s hard to reconcile with the stock market, which climbed impressively this year.

Or then again, maybe the market has simply overpriced both stocks and long-term bonds.

The answer appears clearer to Chris Martenson. He wrote on MarketWatch that markets are in a bubble:

While there are a fair number of warning signs now that the free money policies of the world’s central banks have given us another stock bubble, they’re outnumbered by the flashing red lights we see over in the bonds market...

In a normal, non-bubble, environment, we’d expect that more supply coupled with lower credit-worthiness would lead to higher yields. But in the midst of a bubble, we often see the reverse. And today, we are.

Take Italian debt, for example. Italy’s gross domestic product is actually smaller than it was in 2008, and it has issued bonds at a furious pace to keep its economy afloat. As a result, it now sports a frighteningly high debt-to-GDP ratio of over 135%. And yet the yield on its 10-year bond has sunk from 7.1% in 2012 to just 2.4% today.

Martenson also sees rising issuance in corporate bonds, falling credit quality, fewer creditor protections, diminishing yields, insider selling, and evaporating liquidity, and thinks that they add up to a bubble, one that is “larger than any we’ve yet lived through”.

Stocks rise, US and Japanese consumer spending fall

Stocks rose on Friday. The S&P 500 and the STOXX Europe 600 both climbed 0.3 percent, the former regaining the 2,000 level in the process and hitting a record high.

US stocks rose despite mixed US economic data on Friday.

Consumer spending fell 0.1 percent in July, the first drop in six months. Income rose 0.2 percent, the smallest increase since December.

However, the Thomson Reuters/University of Michigan consumer sentiment index rose to 82.5 in August from 81.8 in July and the Institute for Supply Management-Chicago’s business barometer rose to 64.3 this month from 52.6 in July.

Data released earlier on Friday showed that Japan's economy started the third quarter on a weak note.

Household spending fell 5.9 percent in July from a year earlier, worse than the 3.0 percent fall in June, while industrial production rose 0.2 percent in July, barely rebounding after falling 3.4 percent in June.

The jobless rate rose to 3.8 percent in July from 3.7 percent in June but the jobs-to-applicants ratio remained at a 22-year high of 1.10.

Inflation excluding fresh foods was 3.3 percent in July, unchanged from the previous month. Excluding the effect of the April sales tax hike, the inflation rate was 1.3 percent.

However, inflation in the euro area fell further in August to 0.3 percent from 0.4 in July, according to a report on Friday. Another report showed that the eurozone unemployment rate for July was 11.5 percent, unchanged from the previous month.

The euro area's largest economy, Germany, showed more signs of weakness on Friday, reporting that retail sales fell 1.4 percent in July.

The UK housing market, though, showed surprising strength in August. Nationwide reported on Friday that British house prices rose 0.8 percent this month, faster than the 0.2 percent rise in July.

US 2nd quarter growth revised up, eurozone economic confidence falls

US economic data on Thursday were positive.

Revised GDP data showed that the US economy grew at a 4.2 percent annualised rate in the second quarter, more than the initial estimate of 4.0 percent.

Another report on Thursday showed that US pending home sales rose 3.3 percent in June.

Economic data from Europe on Thursday were negative though.

The European Commission's economic sentiment indicator for the euro area fell to 100.6 in August from 102.1 in July.

German unemployment rose by 2,000 in August while the unemployment rate stayed unchanged at 6.7 percent.

Investors, though, were again distracted by rising tension in Europe on Thursday amid signs of a Russian invasion of Ukraine.

Stocks fell as the S&P 500 declined 0.2 percent to fall below the 2,000 level while the STOXX Europe 600 fell 0.7 percent.

US Treasuries rose, with the 30-year yield falling 3 basis points to 3.08 percent and the 10-year yield falling 2 basis points to 2.34 percent.